‘Vouchercare’ Is the Right Name for Medicare: Laurence Kotlikoff

June 15 (Bloomberg) -- There’s a lot in a name. Just ask
the so-called pinkos from the 1950s, or any ethnic group
denigrated with a nasty epithet.

In our Medicare debate, the role of invective has been
foisted upon the word “voucher.” If we want to get our
government’s finances under control, it’s time we rehabilitated
it.

The use of the V-word screams “far right wing.” Its
public utterance has become so dangerous that Democrat Alice
Rivlin and Republican Paul Ryan, in proposing their Medicare fix
last December, referred to vouchers as “payments to
providers.” Nonetheless, when Ryan put forward a similar plan
this spring, Democrats immediately labeled it with the V-word.

I, too, have used the V-word in my own reform proposal,
which is a voucher system for the entire country. Five Nobel
laureates, most quite liberal, signed on, but others said they
were uncomfortable with the word. One famous economist told me
his mother would disown him if he endorsed a plan containing it.

Lately, though, people have been asking more questions
about the V-word. Yes, Ryan’s plan features vouchers, but isn’t
our Medicare card effectively a voucher? His recommendation is
to limit Medicare spending growth, but aren’t such limits
inevitable? Aren’t the president’s new health exchanges for the
uninsured really a voucher plan?

Critics Respond

These questions are forcing Ryan’s critics to respond. Paul
Krugman’s recent New York Times column, “Medicare Is Not
Vouchercare,” is a case in point. Krugman manages to drop the
V-word in his title and nine times in his column. As for his
other words, they are, well, truthy.

First, Krugman suggests that Medicare directly pays all
health-care providers. Not so. More than one fifth of Medicare
participants are enrolled in Medicare Part C, in which the
government makes payments to providers through private insurance
companies. That’s the same system that Ryan is proposing, albeit
for all participants.

Second, Krugman says vouchercare “would pay a fixed amount
toward private health insurance -- higher for the poor, lower
for the rich, but not varying at all with the actual levels of
premiums.”

Again, not so. All the plans -- Ryan’s, Rivlin-Ryan, my
own, the president’s health-care exchanges and Medicare Part C -
- explicitly or implicitly adjust payments according to the
patient’s risk profile, providing larger amounts for those with
higher expected health-care costs.

Krugman Claims

Next Krugman claims that “If you couldn’t afford a policy
adequate for your needs, even with the voucher, that would be
your problem.” Nope. The voucher plans will require insurers to
offer a basic policy whose coverage is set by a medical panel.
No one can be turned down by participating insurers.

Granted, not everything will be covered by the basic
policy, but not everything is covered by the current Medicare
system. Indeed, Medicare covers only 45 percent of the total
health-care costs of the elderly.

Krugman also rails against Ryan’s proposed vouchercare
budget, claiming it’s too low. But Ryan spends the same in the
short run as the current system. Ryan’s plan is too stingy with
respect to future spending, but that’s easily fixed without
changing his basic structure.

Cost Controls

Finally, Krugman suggests we can control Medicare spending
by adopting better cost controls. No doubt. But by my count,
we’ve had 19 different Medicare cost-control initiatives in the
program’s 45-year history, and costs are still exploding. The
one thing we haven’t tried, which Ryan proposes, is to put
Medicare on a strict budget equal to the total amount of the
vouchers.

This is what Canada, whose health-care system Krugman
admires, does. It sets a budget to pay doctors, build and run
hospitals, buy medications and so on, and the country sticks to
it. The difference is that under Ryan’s plan, private insurance
companies, rather than provincial insurance ministries, receive
the vouchers and reimburse health-care providers. The vouchers
would include a small fee to the insurance companies, but even
Canada pays the folks working for its provincial insurance
ministries.

Private Advantage

The advantage of having private insurers is they can
compete with one another to provide the best health care per
voucher dollar. They can also experiment to give us the best
financial incentives to improve our health. And since they will
directly bear the costs of every extra dollar spent on health
care on the elderly, they will have the right incentives to
control costs. Finally, private insurers can form a buffer
between Congress and elderly voters, who want the system to
cover more than it can afford.

We don’t have a lot of time to get Medicare right. It’s the
800-pound gorilla when it comes to deficit reduction. Even if
the debt ceiling is raised before August and formal default is
averted, investors and rating companies are going to need more
than empty promises of future Medicare cost controls to keep
buying U.S. government bonds and maintain the bonds’ AAA rating.
They will want a policy in place that will work for sure.
Vouchercare is the answer, and Krugman has done this policy a
great service in coining its name.

(Laurence J. Kotlikoff, a professor of economics at Boston
University, is a Bloomberg View columnist. The opinions
expressed are his own.)